Avoid the 50/50 co-founder model - here's why
January 10, 2012starting up
I recently received an email asking some advice about co-founders, specifically about whether a 50/50 ownership split makes sense for a startup.
This is certainly a topic which has had heated discussion many times previously. So why would I choose to add even more noise to this debate? Well, in the past few years I’ve had experiences of failed co-founder partnerships and with my latest startup Buffer I found a better solution for my own personality. This may resonate with others, so I want to share it.
The 50/50 co-founder model
When I talk about the 50/50 co-founder model, what I really mean is the equal stake model. Whether you have two, three, four co-founders or even more, I believe you should very rarely have equal ownership of a company across founders.
I have a few key reasons I believe that an equal split of equity can be a recipe for failure.
Fundamentals of problem discovery
I think more often than not, if you begin a startup with someone you believe will be a great business partner, you will sit down and “talk ideas”. You might have a long brainstorming session about what startup you could build together and how you can take over the world and become the next Larry and Sergey, or the next Chad and Steve.
I think it could easily happen that you might have this whole conversation for an hour or more without ever talking about a “problem”. The thing is, a “problem” is what matters for a startup. If you’re not solving a problem, you’re going to struggle to reach product/market fit and gain meaningful traction. Successful startups almost always come from problems, and problems are normally discovered when a single person personally suffers the problem for enough time to decide to search for a solution and then choose to solve it themselves.
If you delay finding a co-founder, I believe you have a much higher chance of building a solution to a problem worth solving. Pay attention to what you do each and every day, a little more than you do right now. Eventually you’ll come across problems which need to be solved. Find one and start solving it yourself. Then find a co-founder when you desperately need them to help you build upon the traction you have.
Validation of meaningful contribution
One of the hardest parts about finding a great co-founder is whether they will be worth the large equity stake you need to give them. Even with vesting (which I highly recommend), you are making a big commitment which will still be a hassle if it doesn’t work out.
The key thing about founders is that you need someone you can truly rely on to get their part of the work done. If you’re technical, you need a guy who can do serious hustling to get your product in front of masses of people. If you’re the hustler, you need someone you can count on to build a great product.
If you delay finding a co-founder until you’ve validated your startup with a first version and some meaningful traction, then they can see that you have validated the contribution you will make. Then, bring someone on board slowly and ask them to join you fully as a co-founder with a decent stake once they’ve proven their contribution.
A better approach
I believe that perhaps the best approach to finding a great co-founder for your next venture is to initially act as if you will never have a co-founder. I had no idea at the time, but looking back and connecting the dots I realise that this is what I did with Buffer, and it worked very well.
By taking the mindset that you will have to build the startup completely by yourself, it forces you to learn the parts which don’t come naturally. If you’re a coder, it means forgetting about beautiful code for a moment and thinking about what really matters. It means questioning whether you’re building something people want. If you’re not a coder, it means finding ways to build a very basic prototype to test and market to get enough traction.
The outcome? I think Andy Young puts it best:
"you’ve no idea how much more motivating it is to someone technical to look at the shitty prototype you had built for $500 on Rent-a-coder, or painfully clubbed together yourself, and say, Obviously I can help you build that much better, than it is for them to listen to a shitty pitch."
Similarly, as a coder I put together a good first version of Buffer and got traction with minimal marketing skill and that’s when Leo came on board. For him, I think he could see massive potential to attract users to the product.
Mark Suster’s take on this topic is also worth a watch:
There will be exceptions
Of course there will be exceptions, and I’m sure there are countless startups out there formed on successful 50/50 partnerships. However, almost all startups I know which have failed (including one of my own) were formed on 50/50 partnerships.
I believe that experienced founders with a number of successful exits may be able to partner with another experienced founder and make it work. They will have experienced and observed enough failures to avoid building a solution to a nonexistant problem, and they have already proven they can make massive contributions and build something from nothing.
For the majority of us, however, we are first time founders and we have much more learning to do. This was the case for me, and when I validated the idea myself and took on a co-founder gradually to allow him to prove his value. He went far beyond my expectations in proving his value, and that’s when things really changed. I couldn’t have taken Buffer to that next stage without him, and he has a stake which reflects that.
Photo credit: Helena Eriksson